The Pulse

Artificial income tax cap would permanently hamstring our public schools

By: - June 21, 2018 6:24 am

By all accounts, the biggest issue facing North Carolina’s public schools is the lack of adequate funding. Adjusted for inflation, 18 of the 24 biggest school funding allotments remain below their pre-Recession levels, or have been eliminated altogether. As a result, North Carolina’s per-student state funding remains 3 percent below pre-Recession levels after adjusting for inflation. According to the most recent data from the National Education Association, North Carolina’s per-pupil spending ranks 39th in the country, trailing the national average by over $2,400, or 25 percent.

More sophisticated measures of school spending paint an even bleaker picture. For example, EdWeek’s Quality Counts report gives North Carolina an F (47th in the nation) for level of school spending. Research from the Education Law Project and Rutgers University reaches a similar conclusion, ranking North Carolina 48th in terms of total school spending.

Compared to other states, North Carolina devotes a shockingly small share of its wealth towards funding our public schools. North Carolina’s spending on public schools accounts for less than 2.8 percent of the state’s gross domestic product. By contrast, Vermont makes twice the effort, devoting 5.6 percent of its state wealth to its public school system. Overall, North Carolina ranks 46th in terms of school funding effort; a ranking that has fallen even as the national recovery officially began.  Rather than invest when it has been possible to do so, the current leadership of the General Assembly has continued to reduce their commitment to our classrooms and children.

If North Carolina’s lawmakers were interested in addressing the inadequacy of North Carolina’s school funding, they should want to have every revenue-generating tool at their disposal. Particularly, lawmakers should prioritize revenue options that minimize the tax burden on lower-income North Carolinians who have mostly been left behind in North Carolina’s economic recovery.

That’s why it’s unconscionable that legislative leaders are seeking to amend the North Carolina Constitution to create an arbitrary income tax cap of 5.5 percent. Legislators are currently debating whether to place the income tax cap on the ballot this November. If the measure were to pass, future legislators will have fewer options for addressing North Carolina’s school funding shortfall. The most obvious alternative revenue source – the sales tax – is regressive, falling disproportionately on the backs of low-income North Carolinians.

Addressing North Carolina’s school funding shortfall requires substantial investment. Meeting recommended staffing levels for school nurses, counselors, and other certified support staff would require $644 million. Restoring all other allotments to their previous levels of funding would cost $940 million. Providing North Carolina teachers with salaries that are competitive with other professions would cost at least $1.4 billion. Meeting the national average per-pupil spending levels would require an investment of $3.7 billion. Analysis from Rutgers University indicates that it would cost nearly $4.4 billion to allow every North Carolina school district to reach national average student achievement outcomes.

In the absence of an arbitrary income tax cap, achieving these school funding goals would be entirely possible. One only has to look back to 2012 – a year in which Site Selection magazine ranked North Carolina first in terms of business climate – to see that North Carolina could substantially address its school funding issues by simply prioritizing school funding over tax cuts. Tax changes since 2013 – including a reduction of the top marginal state income tax rate from 7.75 percent to 5.25 percent – will drain $3.5 billion per year from state coffers once fully implemented. Of course, a return to 2012’s tax system would be impossible if income taxes were arbitrarily capped.

One could also look to our neighbors in South Carolina to see just how possible it is to have an adequately funded school system. South Carolina is not nearly as wealthy as North Carolina. Still, per-student spending in South Carolina is now 25 percent higher than in North Carolina. If North Carolina made the same effort (spending as a share of state GDP) as our neighbors to the south, North Carolina’s schools would receive an extra $5.3 billion, a nearly 40 percent increase to current funding levels!

The future for North Carolina’s schools would look grim if arbitrary income tax limits were imposed. With the past decade of austerity budgets, we’re already witnessing declining student outcomes and widening achievement gaps. Under an arbitrary income tax cap, future efforts to increase school funding would have to rely mostly on sales tax increases, placing the burden of school funding on the residents who can afford it the least. It’s no coincidence that sales tax increases ask little of the state’s millionaires, who on average are pocketing $45,000 per year due to recent state tax cuts.

Another possible consequence of an arbitrary income tax cap would be placing more school funding responsibility on local governments. Of course, the ability of North Carolina’s counties to raise tax revenue varies incredibly. Dare County’s property tax base per student is more than ten times larger than the per-student tax base in Robeson County. Shifting funding responsibility down to local governments will widen inequities between the haves and the have-nots, making a child’s prospects for a flourishing life increasingly dependent on being born in the proper zip code.

The allure of an arbitrary tax cap may appear obvious. But it leaves state policymakers with just two alternatives: permanently denying North Carolina students a sound, basic education, or shifting the tax burden of supporting our schools onto the backs of low-income and middle class North Carolinians.

In the end, taxes are what we pay to have a functioning society – the bedrock of which is a high-quality public school system. A strong, inclusive public school system generates the innovations that improve our quality of life, creates the informed electorate necessary for democracy to function, and provides children with the tools necessary to lead meaningful, fulfilling lives. Under the current system, too many North Carolinians are already being denied these rights. By creating an arbitrary income tax cap, legislators would enshrine these inequities into our state’s constitution, denying children an adequate education to preserve out-sized tax savings for millionaires.

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Kris Nordstrom
Kris Nordstrom

Kris Nordstrom is a Senior Policy Analyst with the North Carolina Justice Center's Education & Law Project. He previously spent nine years with the North Carolina General Assembly’s nonpartisan Fiscal Research Division.